Nifty & Sensex Slump: A golden opportunity for long-term investors

With the Indian stock market undergoing significant volatility, especially after remarks from former President Trump targeting industries like steel, automobiles, pharmaceuticals, and semiconductors, investors may be wondering about their next move. The stock market experienced its fourth consecutive decline on Friday, with the Nifty 50 index dropping by 117 points, closing at 22,795, and the BSE Sensex falling by 424 points to settle at 75,311. The Bank Nifty index, too, slipped 353 points, ending at 48,981.

However, despite this downturn, Subhash Chand Aggarwal, Chairman & Managing Director of SMC Global Securities Limited, believes that long-term investors can still benefit from this market volatility. According to him, factors such as stable economic growth, focused efforts to boost exports, and the strengthening of US-India trade relations are all key to ensuring long-term success for investors. These elements will help companies generate higher earnings, which will benefit those who take a long-term investment approach.

How Long-Term Investors Can Capitalize on Trump’s Tariff Comments

Despite Trump's tariff rhetoric, which has created volatility in markets, India’s GDP is expected to remain steady, projected to grow between 6.3% and 6.8% for FY26. With India focusing more on domestic growth, enhanced consumer spending, and infrastructure development, the effects of tariff wars are expected to have only a limited impact on the country. Moreover, the ongoing US-China trade tensions present an opportunity for Indian exporters, as US buyers look for alternatives to avoid higher costs. This shift is expected to benefit sectors such as electrical machinery, automobiles, mobile phones, pharmaceuticals, and textiles, given India’s strong manufacturing capabilities and competitiveness.

The United States is India’s largest export partner, accounting for 17.7% of the country’s total exports in FY24. Recent discussions between Prime Minister Modi and former President Trump aim to increase bilateral trade to $500 billion by 2030, from $190.08 billion in 2023. These discussions promise to ease trade barriers and regulations, particularly for the service sector, which will boost investor confidence. Furthermore, India has attracted $67.8 billion in foreign direct investment (FDI) from the US between April 2000 and September 2024, solidifying the strong trust in the Indian economy.

Bottom Fishing Opportunity

The current market correction presents a prime opportunity for investors to engage in “bottom fishing,” a strategy where they buy undervalued stocks during market dips. The Nifty index has fallen by about 13% to 14% from its all-time highs, making it an ideal time for long-term investors to seek opportunities at discounted prices. The banking sector, which holds the highest weight in the Nifty 50, has also been hit by the downturn. The Nifty Bank index has fallen by about 4% in the past six months, now trading near a 52-week low. However, it is currently undervalued, with a price-to-book ratio of 2.12, suggesting a good buying opportunity.

The RBI’s recent actions, including a 25 basis point repo rate cut, are expected to increase credit demand and spur recovery in the banking sector. The RBI’s efforts to manage liquidity, such as bond purchases and Variable Rate Reverse Repo (VRR) auctions, are anticipated to support a rebound in banking stocks.

Top Sectors for Long-Term Investment

Despite recent sluggish demand, inflationary pressures, and lower margins, several key sectors are showing signs of recovery. Long-term investors should consider focusing on the following:

BFSI (Banking, Financial Services, and Insurance): The sector saw an 11% year-on-year growth in earnings, driven by improved credit growth and lower credit costs for PSU banks.

IT Sector: Indian IT companies have shown an 11.7% year-on-year growth in net profits, particularly in the BFSI vertical, as recovery in US exports boosts earnings.

Telecom Sector: The telecom industry experienced a remarkable 159.2% year-on-year profit growth, driven by increased data traffic, expanding user bases, and higher average revenue per user (ARPU) due to tariff hikes.

Healthcare Sector: Healthcare companies have posted a solid 25% growth in profits, fueled by strong demand for generics in the US market and stable input costs.

Real Estate Sector: Real estate has seen impressive 60% year-on-year profit growth, with rising demand for luxury and premium properties.

These sectors are well-positioned for growth over the long term, driven by robust business models and higher consumer demand.

Challenges for India’s Economy

While India’s economic outlook remains stable, there are a few challenges to address. The weakening rupee, slowing urban consumption, and rising global uncertainty pose risks. However, the government’s strategies, including forex interventions to manage rupee volatility and initiatives to increase disposable income through tax rebates, are expected to mitigate these challenges. Furthermore, India’s GDP growth is forecasted to improve to 6.3% in FY25, driven by factors such as stronger rural demand, reduced inflation, and increased capital expenditure.

In the Union Budget, the government has targeted a fiscal deficit of 4.4% of GDP for FY26, an improvement from the previous year’s revised estimate of 4.8%. With a disciplined fiscal strategy and higher consumer spending, India’s economy is on track for long-term growth.

For long-term investors, the current market correction presents an opportunity to buy stocks at discounted prices in sectors showing strong growth potential. By focusing on sectors with solid earnings, strong fundamentals, and government support for economic growth, investors can ride out short-term volatility and benefit from India’s long-term growth story.

Disclaimer: The views and recommendations shared in this article are based on the opinions of individual analysts or firms. Investors should seek advice from certified financial experts and conduct their own research before making investment decisions.